How forecasts change!

I had a very interesting discussion yesterday with a group of students doing an MSc course at Nottingham University, around understanding forecast change. As a forecast period end is passed through numbers change as new demand history is absorbed, new parameters are adjusted and re applied, new external data is acquired and added. Consequently at an item / location level there are potentially fundamental changes to the forecast. When these numbers are understood such as through the first period of a large new contract kicking in, they are accepted and the forecast "approved". There is a need to understand the numbers presented to you, therefore to be able to explain the changes, this intuative need can build confidence in the process and consequently the results. As the Forecast Manager for a food manufacturer a number of years ago, on introducing a new forecasting process, I sat down each month to look at the forecast by account by product group with each National Account Manager. In the early months they often did not "like" the numbers and wanted to change them, for no particular reason! To help with this confidence gap I allowed management adjustments to be recorded with a reson code FNGRA (for no good reason at all), for the following three months a report was sent to the NAM of how they would have improved the forecast or not! (statistically this was normally about 15-20% of the time). After the 3 month phase was up the same report when to the NAM and their boss! The adjustments had become much more functional, and the tended to be made for a reason e.g competitive activity, in store promotion etc... However there still was a deep instinct to understand! In a different company we used a pick best algorithm that having rolled through the period end would then review all the algorithms to use the model that best "explained" (best fit) the history. The problem with such an approach was that if a product sat close to a threshold, the model use could change between algorithms each much! The numbers would change "for no good reason at all", this created distrust in the system, ultimately to the end that the pick best option was switched off. Do you understand your numbers? Do you need to? Can they be explained? How do you build confidence in the process?

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